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Trusts and Estates
Temple University School of Law
Bartow, Robert J.

Trusts & Estates Outline

Wealth Transfer Upon Death

I. Probate Property – Property that is passed under the decedent’s will or by intestacy
A. Probate property includes all assets owned by the deceased in the deceased’s own name at death and that have no expressly named beneficiaries, including mutual funds and stocks in decedent’s name, personally held property such as automobile or cash, or real property.
B. Probate is the default – Probate can be avoided by having some of the property transferred when the person is alive or making the property nonprobate
C. Functions of Probate:
1. Transfers title– evidence of transfer to new owner by a probated will or decree of intestate succession
2. Protects creditors – requires that debts are paid
3. Distributes property – makes sure intended beneficiaries get the remaining property
D. Disadvantages of Probate:
1. Costly – process is costly due to probate court fees, personal representative’s fees, attorney’s fees, and miscellaneous other fees that may be applicable. The estate is also subject to federal estate and gift taxes.
i. Federal estate tax – the amount of property that can be passed free of any federal estate tax is $3.5 million ($7 million for couple) and above.
ii. Gift tax – captures transfer during life; focuses on inter vivos transfers that lack consideration. The tax is imposed where a donor makes a taxable gift.
iii. Note: Transfers to spouse or to charity/foundation can qualify for federal estate and gift tax deductions.
2. Lengthy process – probate of fairly simple, uncontested estate takes anywhere one to two years
D. Testacy
1. A person with a valid last will and testament is said to have died testate and his or her property will be distributed pursuant to the terms of the last will and testament
i. Real property is devised to devisees
ii. Personal property is bequeathed to legatees
2. “Dead Hand” Control – arises where a decedent conditions a testamentary gift to a beneficiary upon a beneficiary behaving in a certain way
i. Donor’s Intention determines the meaning of a donative document and is given effect to the maximum extent allowed by law
1. American law does not grant courts any general authority to question the wisdom, fairness, or reasonableness of the donor’s decisions about how to allocate his or her property. The main function of the law in this field is to facilitate and not to regulate.
2. American law curtails freedom of disposition only to the extent that the donor attempts to make a disposition or achieve a purpose that is prohibited or restricted by an overriding rule of law.
ii. Valid conditions – Testamentary conditional gifts are valid unless they violate public policy, or judicial enforcement of the condition would constitute state action violating constitutionally protected fundamental rights. Courts have been reluctant to find that upholding conditional terms of the gift constitutes sufficient state action to offend the Constitution, or that conditional terms violate public policy.
iii. Invalid conditions – there exists a handful of conditions that have generally been held to be invalid as against public policy:
1. Absolute restraints on marriage – gifts conditioned on the beneficiary not marrying anyone – at least as to first marriages – generally are considered to violate the fundamental right to marry and are void.
1. Exception – partial restraints: Partial restraints on marriage that impose only reasonable restrictions generally are not contrary to public policy and are valid. What constitutes a “reasonable” restriction is very fact sensitive. The courts pay particular attention to the age of the intended beneficiary and the time frame of the intended restriction or condition.
2. Exception – temporal/religion requirement: Gifts requiring a beneficiary to marry within a reasonable time period, even to someone of a particular religious background, have been held valid. Such gifts arguably do not restrict an individual’s right to marry; they merely encourage him or her to marry within a certain time frame and within a particular religion.
i. Shapira v. Union National Bank – a father’s testamentary gifts to his sons required each to be married within seven years of the father’s death to “a Jewish girl whose both parents were Jewish.” One son sued, claiming the condition: (1) violated his fundamental right to marry, a right protected by the 14th Amendment to the Constitution; and (2) violated public policy generally. The court ruled that (1) enforcing the conditions did not constitute sufficient state action to offend the Constitution, and (2) gifts conditioned on a beneficiary marrying within a particular class or religion constitute only a partial restraint on marriage, which is reasonable and valid and not against public policy.
2. Religion requirement – gifts that require a beneficiary to remain faithful to a particular religion generally are held to violate public policy concerning religious freedom and are invalid.
3. Encouraging separation or divorce – gifts that require a beneficiary to separate or divorce before receiving the gift generally are deemed against public policy and are void. But gifts that provide for a beneficiary only in the event of separation and/or divorce are not necessarily deemed to encourage divorce. The controlling factor appears to be the decedent’s dominant intent: to encourage the separation/divorce or merely to provide support in the event of separation/divorce.
4. Promoting family strife – gifts conditioned upon family members ostracizing and/or not communicating with other family members generally have been held to violate public policy and are void.
5. Property destruction directive – individuals are not free to destroy property upon their death, and such directives are invalid. Destruction of property inter vivos carries with it an economic cost that deters owners. Destruction of property at death carries with it no meaningful economic cost for the decedent and deprives society of the opportunity to determine the best use of the property.
1. Exception – personal property with no societal value may be destroyed
iv. Remedy – Where there is a conditional gift that violates public policy, the critical variable is whether there is a gift-over clause: a clause in the instrument that provides where the gift is to go if the condition or restriction is not satisfied.
1. Gift-over clause: Where a gift-over clause exists and the conditional gift violates public policy, more often than not the courts will strike the condition as void as against public policy, but the courts will not give the property to the beneficiary subject to the condition. Instead, the property will be distributed to the alternative beneficiary under the express gift-over clause.
2. No gift-over clause – Where no express gift-over clause exists, if there is a conditional gift that violates public policy, most often the courts will simply strike the void condition/restriction and permit the beneficiary subject to the condition to take the property free and clear of any conditions.
E. Intestacy
1. A person who dies without a valid last will and testament is said to have died intestate and his or her property will be distributed pursuant to the state statute on descent and distribution

II. Nonprobate Property – decedent’s nonprobate property goes to the transferees identified in the written instrument (will-substitute) properly creating the nonprobate property arrangement.
A. Decedent has to take affirmative steps for the property to qualify as nonprobate property.
B. Nonprobate property includes:
1. Join

estate estate;
(4) if there are surviving issue one or more of whom are not issue of the surviving spouse, one-half of the intestate estate.
2. 1990 § 2-102. Intestate Share of the Spouse.
The interstate share of a decedent’s surviving spouse is:
(1) The entire intestate estate if:
(A) no descendant or parent of the decedent survives the decedent; or
(B) all of the decedent’s surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent;
i. Note: The assumption underlying this provision is that the decedent and the surviving spouse have a common interest in providing for their children, and that the spouse can be counted upon to provide for those children after the decedent’s death.
(2) The first [$300,000], plus three-fourths of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent;
(3) The first [$225,000], plus one-half of any balance of the intestate estate, if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has one or more surviving descendants who are not descendants of the decedent;
(4) The first [$150,000], plus one-half of any balance of the intestate estate, if one or more of the decedent’s surviving descendants are not descendants of the surviving spouse.
B. Domestic Partners and Intestate Succession
1. Marriage requirement: The term spouse as used in descent and distribution statutes assumes that the couple has gone through a valid marriage ceremony.
2. Cohabitants: Non-married couples who live together generally do not qualify as spouses and have no inheritance rights upon the death of one.
i. Common law marriage – common law marriage doctrines generally provide that if a couple lives together for the requisite period of time and holds itself out as a married couple, the couple is treated as a married couple even though its members fail to go through a valid marriage ceremony. If cohabitants meet the requirements for common law marriage, they have the inheritance rights of a married couple. Not all jurisdictions recognize common law marriages.
ii. Same-sex couples – In a few states, same-sex couples may enter into a “civil union” or register with the state as “reciprocal beneficiaries” or “domestic partners” and then receive inheritance rights and elective share rights similar to those of a spouse. Where permitted, such rights vary greatly in detail from state to state. The federal government does not recognize same-sex marriage.
C. Marital Property Systems
1. Separate Property System (Common Law) – followed by the majority of jurisdictions
i. Any property acquired by either spouse, including his or her earnings, is that spouse’s separate property. A spouse has no rights in the other spouse’s separate property absent divorce or death, unless the property is put under both spouses’ names to become joint owners.
If one spouse is the wage earner while the other